1000's of pensioners overcharged £10,000 on pension withdrawals

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Your help makes all of the distinction. Learn extra 1000's of pensioners have claimed again greater than £10,000 after being overcharged tax on their pension withdrawals, new evaluation exhibits.

A handful of individuals within the UK got a refund price greater than £100,000.

The HMRC figures, which had been obtained by Royal London by means of a freedom of data (FOI) request, present a rise within the variety of refunds claimed in 2023-24.

Pension freedoms, which got here into power from 2015, gave over-55s a variety of choices over use their outlined contribution (DC) pension pot.

Typically, folks can take as much as 25% of their pension as a tax-free lump sum, and the remaining 75% is taxed as revenue.

Nevertheless, an “emergency” charge is utilized to pension withdrawals, with HMRC assuming it will likely be the pensioner’s month-to-month revenue for the remainder of the tax yr.

Which means that folks could possibly be overcharged in the event that they make one-off withdrawals.

Round 60,000 pension savers claimed refunds within the 2023-24 tax yr, 20% greater than the roughly 50,000 the earlier yr, Royal London’s information confirmed.

About 11,700 pensioners claimed again £5,000 or extra, together with 2,400 who got refunds in extra of £10,000.

The common refund was price £3,342, which was £280, or 9%, greater than 2022-23.

The highest 25 refunds averaged at £106,900, in keeping with the info.

Clare Moffat, pension skilled at Royal London, stated: “It’s unimaginable to suppose that some folks withdrawing from their pension for the primary time had been entitled to emergency tax refunds in extra of £100,000.

“Not solely do these taxes often come as a large shock, the surprising tax quantity also can scupper folks’s rigorously laid plans.

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“HMRC just lately introduced an overhaul of its emergency taxing codes on pensions, which it guarantees will ship faster refunds, however that doesn’t imply folks gained’t nonetheless be charged the upper charge within the first place.”

From April, HMRC modified its course of in order that tax codes are routinely up to date for people newly receiving a personal pension.

Ms Moffat stated the Authorities’s choice that unused pension funds shall be topic to inheritance tax from 2027 means “increasingly more individuals are contemplating dipping into their pension pots whereas they're alive” to make massive lifetime presents to family members.

Pensions are at the moment exempt from inheritance tax so are seen as a tax-efficient approach of passing on wealth.

“An increase in massive lump-sum withdrawals will seemingly imply a good larger spike in emergency taxes on these withdrawals,” she stated.

“So, the issue of emergency taxes isn’t going away, and there’s an opportunity it may worsen.”

About £1.4 billion has been refunded since 2015, the figures revealed.

A spokesman for HMRC stated: “In the end, no person overpays tax because of making the most of pension flexibility.

“We'll repay anybody who pays an excessive amount of as a result of they’re on an emergency tax code and people can declare a compensation a lot earlier if they need.”